Taite v Connolly

• Jurisdiction: Ireland
• Judge: Mr. Justice Binchy
• Judgment Date: 08 March 2016
• Neutral Citation: [2016] IEHC 145
• Docket Number: [Record No. 2012/277 COS]
• Court: High Court
• Date: 08 March 2016

[2016] IEHC 145

THE HIGH COURT

Binchy J.

[Record No. 2012/277 COS]

IN THE MATTER OF MJBCH LIMITED (IN LIQUIDATION)

AND

IN THE MATTER OF SECTION 150 OF THE COMPANIES ACT 1990 AND SECTION 56 OF THE COMPANY LAW ENFORCEMENT ACT 2001

BETWEEN:

DECLAN TAITE

Applicant

AND

ROSS CONNOLLY

AND

SEAN DUNNE

Respondent

Company – S. 150 of the Companies Act 1990, as amended – S. 56 of the Company Law Enforcement Act 2001 – S. 819 of the Companies Act 2014 – Declaration of restriction

Facts: The applicant/official liquidator sought a declaration for restriction against the respondents under s. 150 of the Companies Act, 1990, as amended. The applicant contended that the respondents had acted irresponsibly in managing the affairs of the company as they failed to provide proper books and records, and implemented the financial transactions in an inappropriate manner.

Mr. Justice Binchy granted a declaration of restriction under s. 819 (1) of the Companies Act 2014 since the present application came to hearing after the commencement of the Act of 2014. The Court, however, applied the standards as applicable under s. 150 of the Companies Act 1990, which was the applicable law at the time of making of the present application. The Court held that in order to determine whether the directors of a company had acted responsibly, the Court should have regard to the context, in which the relevant acts or omissions of the directors needed to be considered. The Court observed that before making a declaration for restriction, the Court should have regard to the extent to which the conduct of a director was responsible for creating net deficiency in the assets of a company and non-compliance of the statutory provisions coupled with lack of commercial probity and want of proper standards. The Court found that in the present case, the directors had acted irresponsibly as evident from their failure to maintain proper books and records and huge expenditure on tenants improvements in relation to a property at the expiration of a lease, and the manner of conducting other financial transactions. The Court held that the departure of the second named respondent to the United States to attend bankruptcy proceedings would not relieve him to carry out the mandatory obligations under the Irish Law.

JUDGMENT of Mr. Justice Binchy delivered on the 8th day of March, 2016

1 This is an application for a declaration of restriction against each of the respondents under section 150 of the Companies Act, 1990, as amended. That section has been replaced by s. 819 of the Companies Act 2014 (hereafter the ‘Act of 2014’), which came into effect on 1st June, 2015 pursuant to Article 3 of the Companies Act 2014 (Commencement) Order 2015 ( S.I. 169 of 2015). Section 5(7) of the Act of 2014 provides that:-‘Schedule 6 contains further savings and transitional provisions and shall have effect accordingly.’ Paragraph 8(1) of schedule 6 to the Act of 2014 states:-

‘Anything commenced under a provision of the prior Companies Acts, before the repeal, by this Act, of that provision, and not completed before that repeal, may be continued and completed under the corresponding provision of this Act.’

Accordingly this application now falls to be dealt with under s. 819 of the Act of 2014 rather than under s.150 of the Act of 1990. However, insofar as the Act of 2014 may impose a higher standard on directors than that imposed under the Act of 1990, I will deal with this application in accordance with the latter standards i.e. the standards that applied at the time the application was made.

Directors of the Company

2 In his affidavit of 16th May, 2014, grounding this application, the applicant avers that the Company had two directors within a period of 12 months preceding the date of the commencement of the winding up of the Company. The first named respondent, Mr. Ross Connolly, was a director from 27th September, 2007 to the date of the winding up on the Company; he was also the Secretary of the Company. In an affidavit sworn on 12th September, 2014, the first named respondent, avers that in or around July 2008, he was appointed as operational manager for the Company. He describes his principal responsibilities in that role as being: managing trading activities of the Company; providing trading updates to the group's primary lender (Ulster Bank); carrying out weekly meetings in terms of management and finance; analysing and reviewing the Company's cash flow and managing payments due to creditors. The first named respondent avers that while he was a director of the Company for the period stated, the second named respondent was the ultimate owner and controller of the Company. The applicant received a statement of affairs from the first named respondent on 14th September, 2012, following an extension of time for the provision of same.

3 The second named respondent, Mr. Sean Dunne was a director of the Company from 29th May, 2006 to the date of the winding up of the Company. The second named respondent was adjudicated bankrupt in this jurisdiction on 29th July, 2013 and was also adjudicated bankrupt in the United States of America on 29th March, 2013, where he currently resides. No statement of affairs was received by the applicant from the second named respondent and on 8th July, 2013 an order was made by this Court dispensing with the requirement of the second named respondent to file a statement of affairs.

4 The applicant provided a report to the Director of Corporate Enforcement pursuant to section 56 of the Company Law Enforcement Act 2001, on 18th December, 2013 and brings this application not having been relieved by the Director of Corporate Enforcement of his obligation so to do. The applicant has sworn three affidavits in support of this application. A colleague of the applicant's, a Mr. Sean Kelly also swore an affidavit. The first name respondent swore a lengthy affidavit in reply to the first affidavit of the applicant, and a second affidavit in reply to the second affidavit of the applicant. The second named respondent delivered a single affidavit in opposition to the application.

5 In his affidavit, the second named respondent refers to the affidavit of the first named respondent dated 12th September, 2014 (the first affidavit sworn by the first named respondent) and confirms his agreement with the contents of that affidavit and purports to add to the contents of the same by way of clarification of certain issues. But in general terms, it may be said that he purports to adopt the first named respondent's affidavit of 12th September, 2014 in opposition to this application.

Background Facts

6 In order to understand the reasons for the Company's insolvency, a brief overview of the historic corporate ecology of the Company is necessary. On 20th October, 2005, a bank syndicate, comprising Ulster Bank Ireland Limited; ACC Bank Plc. and Kaupthing Singer & Friedlander Ltd. (together hereinafter ‘the bank syndicate’), advanced monies in the amount of €270,000,000 to a company, D.C.D. Builders limited (D.C.D), pursuant to a loan agreement the purpose of which was to facilitate the acquisition by D.C.D of the Ballsbridge Inn and Towers Hotel. DCD advanced the monies to a subsidiary, namely Padholme, which acquired the hotel through the purchase of shares in a company known as Jurys Doyle Property Holding Company (‘JDPHC’). On 20 February, 2006, the bank syndicate advanced further monies, pursuant to another loan agreement, this time in the sum of €100,000,000 to D.C.D to fund the purchase of another hotel, adjacent to the first, and known as the Ballsbridge Court Hotel, the purchase of which was again made through the purchase of shares in a company, in this case a company called Berkeley Court Property Holding Company (‘BCPHC’). The said loan agreements are together hereinafter referred to as ‘the loan agreements.’

7 MJBCH Limited (hereinafter ‘the Company’), was incorporated on 29th May, 2006 as Mountbrook Merrion Road Development Limited and, according to the applicant, is a 100% owned subsidiary of D.C.D. This is not consistent with research undertaken by the applicant in the Companies Registration Office in the Isle of Man and I deal with this in more detail below. The Company subsequently changed its name to MJBCH Limited on or about 11 October, 2007 and began trading in the same month. On or about 20th October, 2007 the Company entered into lease agreements with JDPHC and BCPHC for the purpose of managing and operating the Ballsbridge Court Hotel and the Ballsbridge Inn and Towers Hotel and (hereinafter ‘the hotels’). Upon entering into the leases, the bank syndicate required that the Company provide a guarantee and indemnity (hereinafter ‘the Guarantee’) pursuant to which the Company would provide a continuing guarantee and indemnity in support of D.C.D's obligations under the loan agreements. The Guarantee indemnified the bank syndicate in respect of liabilities of D.C.D in excess of €262million. The bank syndicate further required that the Company enter into a deed of mortgage and charge over its short term leasehold interest in the hotels, which the Company did in October 2007. Clearly the Company, which had little or no assets, never had any prospect of repaying the amount guaranteed to the bank syndicate if called upon to do so. The purpose of the Guarantee and the said mortgage and charge was in order to avoid any gap arising in the security already taken by the bank syndicate over the hotels. Both respondents in their affidavits in opposition to this application aver that it was understood by the bank syndicate that the sole purpose of the Company was to manage and operate the hotels, and that the bank syndicate would not have recourse to the profits of the Company.

8 In 2009, following the collapse of the property market, the Company's borrowings were...